New research has underscored the persistent confusion among Australian consumers regarding ESG (Environmental, Social, and Governance) and sustainable investing, with fewer than 10 per cent possessing a comprehensive understanding of these terms.

According to a survey commissioned by Colonial First State (CFS) and encompassing 1,496 Australians, a mere 6 per cent are confident in their understanding of ESG or sustainable investing. While only 29 per cent are familiar with these terms, a substantial 48 per cent of respondents find claims related to sustainability investments perplexing.

Furthermore, the study reveals that Australian consumers grapple with distinguishing between various ESG investment options. A mere 9 per cent of those surveyed express confidence in their ability to differentiate between a "sustainable fund" and an "impact fund," while a notable 58 per cent admit to being unsure about comparing ESG funds.

A lack of knowledge is also evident when it comes to commonplace industry terms, with 50 per cent and 43 per cent of respondents admitting unfamiliarity with "net zero" and "carbon offset," respectively.

CFS attributes the core challenge to the absence of universally agreed-upon definitions across the industry and the broader economy, coupled with the subjective nature of underlying ESG considerations and the inherent trade-offs involved.

In a collaborative effort, the CFA Institute, the Global Sustainable Investment Alliance (GSIA), and Principles for Responsible Investment (PRI) recently announced the harmonisation of definitions for five terms: Screening, ESG integration, Thematic investing, Stewardship, and Impact investing. This initiative, designed for investors, regulators, policymakers, and other market participants, responds to significant shifts in the responsible investment landscape.

In light of the research findings, CFS urges the Australian government and regulators to collaborate in establishing more consistent consumer labelling standards. The investment manager also voices support for the government's open consultation on Australia's sustainable finance strategy.

The consultation paper emphasises that the country's transition to net zero will necessitate substantial private and public investment. It asserts the importance of ensuring that financial markets are well-equipped to finance this transition and support the government's emissions reduction target. Colonial First State commits to actively engaging in the consultation to further the objectives of the strategy.

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Source: Money Management